2011

REBA v. NREIS Ruling: Massachusetts Real Estate Attorneys Required To Conduct Closings; Notaries Shut Out

by Rich Vetstein on April 25, 2011

in Closings, Massachusetts Real Estate Law, Purchase and Sale Agreements

IMG_1621Ruling Mandates That Attorneys Take “Substantive Participation” In All Massachusetts Residential Transactions

The long awaited ruling from the Massachusetts Supreme Judicial Court in case of Real Estate Bar Association (REBA) v. National Estate Information Services (NREIS) has just come down. The ruling can be read below. The net effect of the Court’s ruling is to reaffirm Massachusetts attorneys’ long-standing role to oversee the closing process and conduct closings. For more background, please read my prior post, Battle Between Massachusetts Closing Attorneys vs. Settlement Service Providers Argued Before SJC.

This case pits Massachusetts real estate closing attorneys vs. out of state non-attorney settlement service providers which are attempting to perform “witness or notary” closings here in Massachusetts. At stake is the billion dollar Massachusetts real estate closing industry.

Quick Analysis

  • Massachusetts attorneys must be present for closings and take active role in transaction both before and after the closing. The substantive ruling from the court was a huge victory for Massachusetts real estate closing attorneys and their continued, long standing involvement in the residential real estate industry. The court requires “not only the presence but the substantive participation of an attorney on behalf of the mortgage lender.” This is what Massachusetts real estate attorneys have been fighting about for consumers in the face of out of state settlement companies who have tried to conduct closings with “robo-attorneys” and notaries who cannot explain complex legal documents to parties at the closing table. The court stated:

The closing is where all parties in a real property conveyancing transaction come together to transfer their interests, and where the legal documents prepared for the conveyance are executed, often including but not limited to the deed, the mortgage and the promissory note. The closing is thus a critical step in the transfer of title and the creation of significant legal and real property rights. Because this is so, we believe that a lawyer is a necessary participant at the closing to direct the proper transfer of title and consideration and to document the transaction, thereby protecting the private legal interests at stake as well as the public interest in the continued integrity and reliability of the real property recording and registration systems.

  • Applies to Both Purchases and Refinances. The court made no distinction between purchase and refinance transactions. The same essential functions of the attorney — examining and ensuring marketable title, handling the mortgage proceeds under the “good funds” law, and ensuring that the mortgage is properly recorded and the prior mortgage is discharged — are the same in both a purchase and refinance. Accordingly, in my opinion, the ruling applies to both purchase and refinance transactions.
  • No “Robo-Attorneys” Allowed. NREIS’ business model is to hire part-time, contract attorneys on an as-needed basis to conduct closings. Basically, these are kids right out of law school who get a call to drive to a closing they know nothing about for $100 or less a pop. Although they are licensed attorneys, these lawyers are really no different than the “robo-signers” in the foreclosure industry because they did not participate in the transaction from the start, they did not examine the title, or do anything to manage the transaction. Here’s what the court said about this practice:

Implicit in what we have just stated is our belief that the closing attorney must play a meaningful role in connection with the conveyancing transaction that the closing is intended to finalize. If the attorney’s only function is to be present at the closing, to hand legal documents that the attorney may never have seen before to the parties for signature, and to witness the signatures, there would be little need for the attorney to be at the closing at all. We do not consider this to be an appropriate course to follow. Rather, precisely because important, substantive legal rights and interests are at issue in a closing, we consider a closing attorney’s professional and ethical responsibilities to require actions not only at the closing but before and after it as well.

  • Analyzing title and rendering an opinion of clear and marketable title must be conducted by attorneys. Certifying good, clear and marketable title is the fundamental function of the real estate attorney in Massachusetts, and required by law for purchase transactions under Chapter 90, section 70. NREIS was attempting to out-source this function to out of state companies and non-lawyers, in avoidance of Mass. law.
  • Attorneys are required to draft deeds. The court held “because deeds pertaining to real property directly affect significant legal rights and obligations, the drafting for others of deeds to real property constitutes the practice of law in Massachusetts.”
  • Attorneys must effectuate the transaction. The court also ruled that only licensed attorneys have  duty to effectuate a valid transfer of the interests being conveyed at the closing. This includes ensuring that the deed and mortgage are properly recorded; that the exchange of funds is properly made and that prior mortgages and liens are properly paid off and discharged.
  • Title abstracts, title insurance and other administrative functions are properly delegated to non-attorneys. The court also correctly recognized, consistent with modern practice, that many functions in the real estate transaction don’t have to be performed by an attorney. Included in this exempted list of functions are the preparation of title abstracts by title examiners at the registries of deeds, the issuance of title insurance policies, and the preparation of closing documents & the HUD Settlement Statement. Real estate attorneys typically use title examiners and paralegals at lower costs to perform these functions.

The case will move back to federal court where it started for more fact-finding unless it can be settled. There were several unanswered questions because the record was not adequately established. It remains to be seen whether NREIS and its ink can adopt their business model to the SJC’s holding. It’s possible it can be done, but they will have to hire a group of attorneys to manage the system.

More Coverage:  Court Weighs In On Lawyers and Closings, Boston Business Journal (argues that this is a blow to attorneys–completely disagree).

State Court Rules Attorneys Must Participate In Home Closings, Boston Globe (yours truly quoted)

REBA v. NREIS Decision

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Nearby Waste Water Treatment Plant Causes A Stink With New Home Buyers

by Rich Vetstein on April 21, 2011

in Disclosures, Massachusetts Real Estate Law, Realtors

Does A Massachusetts Seller and Realtor Have A Legal Duty To Disclose The Existence of a Smelly Waste Water Treatment Plant?

Dear Attorney Vetstein:

We purchased our first home in September. We were unfamiliar with the area and relied heavily on the realtor’s knowledge. After living there for a couple of weeks, we went outside to grill and there was a horrid stench to the air. We weren’t able to eat outside and couldn’t figure out where the smell was coming from. After a few times of this, we researched the area and found out that there was the town’s waste water plant behind what we thought was a house, but what was actually the office. We did a Google Earth search on the plant and it is quite large. We bought the house mainly for the large yard and were looking forward to bbq’s, planting a garden and in general spending a majority of our time outside as we had moved from the city.

Do we have any rights? Had the real estate agent or seller disclosed the existence of the smelly plant to us we would have never bought this house. We want to sell and fear that the home will be unsellable.

Your truly,

Worried About The Smell

Dear Worried,

While your Realtor did you no favors, I’m afraid that you (and your Realtor) should have driven around and investigated the neighborhood before you purchased this home.

Legally in Massachusetts, a private seller has no obligation to disclose anything to you about the home or nearby conditions. A seller can only get in trouble if he is asked a direct question and flat out lies about it. Since you did not indicate that you asked the seller the specific question of whether there were any nearby waste water treatment plants, you most likely won’t have any luck pinning this situation on the seller.

The Realtor, while standing on different legal footing, is also most likely not to blame legally. Under Massachusetts consumer protection regulations governing real estate brokers, a broker must disclose to a buyer “any fact, the disclosure of which may have influenced the buyer or prospective buyer not to enter into the transaction.” This standard, however, doesn’t necessarily mean that a Realtor must disclose every single conceivable on-site or, in this case, off-site condition which may impact the buyer’s decision to purchase. The Massachusetts Supreme Judicial Court has held that off-site conditions may require disclosure only if the conditions are “unknown and not readily observable by the buyer [and] if the existence of those conditions is of sufficient materiality to affect the habitability, use, or enjoyment of the property and, therefore, render the property substantially less desirable or valuable to the objectively reasonable buyer.” In that case, the court refused to hold a seller liable for the non-disclosure of toxic waste contamination at the nearby local elementary school which gave the seller difficulty selling previously.

The key factor here is that the waste water treatment plant is out in the open and obvious to anyone searching nearby. This situation underscores the importance of having a Realtor who knows the neighborhood and also doing your own basic due diligence, i.e, driving around the neighborhood.

I do sympathize with you plight. I’m not sure why the Realtor didn’t feel it was necessary (assuming he or she knew of the plant) to tell you about the stinky plant. It’s certainly something I would have wanted to know. You also didn’t tell me whether the Realtor was the listing agent or your own buyer’s agent. A listing agent’s duty is to the seller and getting the home sold. They do their best not to divulge too much info about the surrounding area, lest they get themselves in trouble (like this case). A buyer’s agent would be much more likely to advise you of problematic conditions like the plant (assuming they know about it). If they didn’t know about it, shame on them.

Sorry to deliver the “stinky” news…

Yours truly,

Richard D. Vetstein, Esq.

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Spring Cleaning: Repairing Waters Stains & Mold From Ice Dam Damage

by Rich Vetstein on April 18, 2011

in Construction Law, Safety

1471403_10203128432314745_4869425574151873063_nA Guest Post by George Lonergan, Owner of Lonergan Construction, Inc. a licensed Massachusetts general contracting company servicing the Metrowest Massachusetts area including Framingham, Natick, Wayland, Sudbury and Hopkinton.

This winter caused a substantial amount of ice dam damage in the Massachusetts area. The water on your roof that pools above ice dams and then seeps down onto your ceilings and between your inner and outer walls typically causes two related problems: 1) ceiling stains and 2) mold, which is a serious health risk.

Treating Ceiling Stains and Mold

If the stain is yellow, it’s dry and can be treated, but only if there’s no mold behind it. Look at the entire floor of the storage area or attic above the stained ceiling. If there’s mold, you’ll probably see it. Don’t disturb it. Spray the affected area with bleach, but don’t soak it.

Next, apply paint blocker to the stained area, let it dry, and apply a coat of white ceiling paint. (If on first inspection the ceiling stain hasn’t yellowed, it’s not dry, and there is still a leak. Find out where the water is coming in, repair the “port of entry,” wait for the stain to dry, and then refinish.

Paint the repaired area with the original color that you had left over, if it still matches the rest of the ceiling, and if you’re not working in a bathroom—where there is too much moisture, which affects wall and ceiling colors—or in a kitchen, where ceilings, due to cooking vapors, lose color more quickly over time than elsewhere in the house. If you need to repaint the entire ceiling, used painter’s tape on the wall where it meets the ceiling. And it’s always a good idea to remove the furniture, or at least move it to the center of the room and cover it with plastic, especially if you have a sand-textured ceiling, which tends to splatter paint.

Treating Mold Between Walls

Begin to determine if the ice dam leak has caused mold to form between your inner and outer walls by looking to see: 1) if there are stains on the interior wall; 2) if there is peeling paint on that wall; or 3) if there is a pool of water on the floor (formed as the ice dam melts). If you see any of these conditions, you had best look between the walls because, where there is moisture, mold usually forms.

The least invasive way to check for mold between the walls is to call in a company that uses special instruments to measure moisture. This is expensive, and won’t tell you what you want to know about mold if the moisture has dried up by the time of testing. A second way is to remove the baseboard molding where the leaking has occurred, exposing the sheetrock or blueboard (plaster) behind it, and check for mold. At the same time, check the backside of the baseboard molding.

If neither procedure provides signs of mold, a more invasive procedure is necessary. Remove the sheet rock that’s just behind the molding, usually 3-4 inches—the height of the molding—and about a foot laterally. Do you see mold?

If it’s determined you have mold between the walls, hire the contractor to perform mold remediation, which includes: 1) removal of the baseboard molding, sheetrock or plaster wall, and insulation; 2) treatment of the exposed studs (whether wood or metal); 3) reconstruction of the wall; and 4) application of a finish to match the color of the rest of the wall.

Never paint over mold in an attempt to mask it! If you do, it will continue to grow and spread. Mold must be removed in order to eliminate the health risk.

Health note: Mold above the ceiling is usually in full view, so you don’t have to disturb it to find it. But the invasive procedures needed to deal with mold between walls means that you have to “encapsulate” the work area, because any mold you encounter, once disturbed, will become airborne and pose a health risk. That’s why you also have to wear a filtering facemask. Mold can cause illness not only in the person doing the work, but also to the rest of the household, whether or not any of them suffer from pre-existing respiratory problems. So it’s best to bring in a qualified contractor to check for mold and take a sample for a controlled test. He’ll identify the strain of mold, too, which is important to know if any of the residents suffer from respiratory problems.

Lonergan Construction, a licensed Massachusetts corporation, builds new homes and remodels existing ones. We offer design and architectural services as well as work in concrete, general construction and demolition, plumbing and electrical systems, heating-ventilation-air conditioning (HVAC), septic systems, roofing, painting, cabinetry, and flooring (wood and ceramic), as well as residential (home) and commercial (office) repairs and remodeling.

Our business comes almost exclusively through referrals, and our only advertising is word of mouth.

Lonergan Construction

508-875-0052

www.lonerganconstruction.com

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An Ounce of Prevention Is Worth a Pound of Cure: Enhanced Owner’s Title Insurance Offers Valuable Benefits

by Rich Vetstein on April 13, 2011

in Massachusetts Real Estate Law, Title Defects, Title Insurance

When you find out you have a major title problem that prevents you from selling or refinancing your home, have fun explaining to your spouse that for a fraction of the cost of your home you could’ve prevented it by buying title insurance.

Enhanced Owner’s Title Insurance Coverage

Available for a few years now, enhanced coverage policies offer vastly improved protection for common title problems at about a 10% cost over a standard coverage policy. (These policies run about $4 per thousand of purchase price). Enhanced coverage policies now cover some of the most common title problems facing Massachusetts residents. Realtors and mortgage professionals should be aware of the benefits of an enhanced coverage policy, and should recommend that their clients opt for the increased coverage. It’s well worth the small cost in premium.

Additional Coverages:

  • Appreciation in property value. Standard policies do not increase their coverage amount in a rising market as a home increases in value. The enhanced policy will increase coverage by 10% per year for 5 years up to 150% of the original policy limit.
  • Encroachments/adverse possession. Standard policies, to most homeowner’s chagrin, do not cover encroachments like a neighbor’s fence, wall or structure over a property line. Enhanced policies provide coverage for such encroachments, and also cover adverse possession–which occurs when an encroachment exists for 20 or more uninterrupted years. For more info on Massachusetts adverse possession, please read our post “Good Fences May Make For Upset Neighbors”.
  • Zoning/Subdivision/Building permit violations. Enhanced coverage policies now provide coverage if the property is not zoned for residential 1-4 family use, in violation of subdivision regulations, or if there is a defect or lack of a building permit. This is a tremendous benefit for commonly arising situations.
  • Easements. Enhanced policies offer coverage for easement encroachment situations such as deeded driveways, drainage easements, utility easements, beach paths, walking paths, etc.
  • Expanded Insured. Enhanced policies will now transfer to a spouse who gets property in a divorce, inheriting heirs, related family trusts and their beneficiaries.
  • Expanded Access Coverage. Enhanced policies now guarantee that your home as adequate vehicular and foot access over adequate streets or roads if there’s a title defect rendering your lot “land-locked.”

Do I Really Need Title Insurance?

The decision to get an owner’s title insurance policy is one of the most important choices you make in connection with your real estate transaction.

As part of every real estate transaction, the borrower/buyer is offered the opportunity to get an owner’s title insurance policy. (For refinances and purchases, your lender will require you to purchase a “lender’s” title insurance policy.) An owner’s title insurance provides the most comprehensive protection available for most every known type of title problem which could affect your property rights. I’m proud to say that every single one of my buyer clients have benefited from an owner’s title insurance policy at their closings, at my strong recommendation.

One needs only to look at the recent controversies over “robo-signing” and the U.S. Bank v. Ibanez defective foreclosure sales, which has stripped thousands of Massachusetts property owners of their property ownership rights, to see why an owner’s title insurance policy could be the best decision a home buyer ever makes. The unfortunate souls who declined owner’s title insurance are now left without legal title to their homes and looking at the prospect of spending thousands of dollars in legal fees to resolve their title issues with no guarantee of success. With a title insurance policy, the title insurance company will hire expert title attorneys to solve title issues at no cost to you, defend against any adverse claims, reimburse you for covered damages, and most valuable, issue affirmative coverage to enable a pending closing to move forward.

When you find out you have a major title problem that prevents you from selling or refinancing your home, have fun explaining to your spouse that for a fraction of the cost of your home you could’ve prevented it by buying title insurance.

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Crazy Trustees, No Pet Rules & Leaky Roofs: Things To Consider When Buying A Massachusetts Condominium Unit

by Rich Vetstein on April 9, 2011

in Condominium Law, Massachusetts Real Estate Law

Buying a Massachusetts condominium unit is VERY different from buying a single family home. A lot of buyers don’t appreciate the difference, unfortunately, until they have lived in the condominium for a short time. From crazy condo trustees (remember the Del Boca Vista episode from Seinfeld?), pet rules and controversies, to leaky roofs — due diligence is critical before you buy a Massachusetts condominium.

Condominium: Special Type of Legal Ownership

From a legal perspective, a condominium is a special type of real estate ownership. When you purchase a condominium unit, you get complete legal title to the unit itself and an “undivided” interest in the common areas of the condominium project which is really everything other than the units. Common areas typically include the land underlying the project, the exterior walls, roof, elevator, building entrances and exits, lobby, interior stairways, swimming pools, recreational facilities and halls.

Common Areas & Financial Management

Each individual unit owner is responsible for everything within the walls of their unit, while the condominium association and its board of trustees are responsible for all the common areas and facilities. This is a critical part of a condominium. You are buying into the entire project as much as you are the unit, and your decision will impact your daily living and your ability to re-sell.

The management and maintenance of the condominium common areas are funded by the collection of monthly condo fees. The condo fees are used to pay for things like master insurance, property management, landscaping, water/sewer, snow plowing, pool cleaning, roof repairs, etc. Well run condominiums will also allocate a percentage of condo fees to a capital reserve fund to pay for expensive one-time capital repairs, usually leaky roofs, old boilers and big ticket items of that nature.

To borrow from a famous phrase, not all condominiums are created equally. Some condominiums are very well run; some are quite poorly run and underfunded. Buyers interested in purchasing a condominium unit must do their homework: not only about the condition of the individual unit they are interested in purchasing, but on the financial health and governance of the condominium as a whole.

Condominium finances also have a significant impact on whether your unit will qualify for certain loan programs. Please read my post, 10 Questions To Ask Before Buying A Massachusetts Condominium for more info on that topic.

Crazy Trustees

Condominium associations are usually run by a board of trustees ranging from 2 to 5 persons. Unfortunately it’s difficult to ascertain whether these individuals are sane and competent. What you can do as a buyer is request the last 3 years of condominium minutes to see what’s been going on with the condo. You should also request the budget for the last 3 years and have the trustees fill out a condominium questionnaire with detailed questions about the financial management. If no minutes are available, that’s a red flag of poor management. Watch out for larger condominiums that are self-managed, that is, not run by a professional management company. Managing a larger condominium is challenging work and a full time job.

No Pet Rules

Another critical part of a buyer’s due diligence is to review the condominium documents, the by-laws, rules and regulations. Here is an example of condo rules I found online from the Liberty Estates Condo in Uxbridge.

One of the most contentious rules in condominium governance is pets. Condominiums can legally regulate pets. They can prohibit them entirely, allow them, or adopt reasonable regulations to control them. Take the Liberty Estates pet rules:

If your dog has been known to get into trouble, this rule may pose a problem. Better to know ahead of time is my point.

Other important rules cover whether you can smoke, rent out the unit, decorations, paint colors, quiet hours, storage, parking, grills, decks, and signs.

And for fun, here’s that Seinfeld condo clip.

___________________________________

Richard D. Vetstein, Esq. is an experienced Massachusetts Real Estate Condominium Real Estate Attorney. For further information you can contact him at [email protected].

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Doomsday For Loan Officers? New Federal Mortgage Compensation Rules Go Into Effect Today

by Rich Vetstein on April 6, 2011

in Mortgages

New Rules May Result In Higher Rates & Costs

Late yesterday, a federal appeals court cleared the way for the immediate implementation of controversial new Federal Reserve loan officer compensation rules. The new rules were intended to prevent the practice of “steering” where a loan officer improperly steered the consumer into higher interest rate loans which provided more commissions.

The new loan officer compensation rules have received much criticism by the lending community as an improper and even anti-American interference with their right to earn a living. I’m not going to bore you with the details of the rules, as they are fairly complicated. I suggest reading about them in David Gaffin’s scathing post “New Fed LO Compensation Rules Will Change The Lending Landscape & Possibly Capitalism! In summary, loan officers must be compensated based on the loan amount, not on other factors of the loan. Our readers, however, care primarily how it will affect them.

Effect On The Massachusetts Borrower

The national consensus and the resulting impact on the Massachusetts mortgage consumer will most likely result in an slight increase in rates and borrowing costs over the short term. Hopefully this will even out over time as lenders get used to pricing their loan products under the new rules. Some lenders with whom we work have already implemented the new pricing changes. It will be interesting to see what loan officers are quoting this morning when rates come out.

Mortgage professionals, what are your feelings about the new rules? Please comment below.

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60 Minutes Segment On Foreclosure Paperwork Mess & Defective Titles

by Rich Vetstein on April 4, 2011

in Foreclosure, Massachusetts Real Estate Law, Mortgage Crisis, Title Defects

Last night, 60 Minutes did a compelling segment — Mortgage Paperwork Mess: Next Housing Shock? — on an important issue we’ve been covering here on the Blog . The segment details rampant forgeries by $10/hour bank “vice-presidents” and the pervasive robo-signing of bogus mortgage documents by “document mills” and “foreclosure factories.”

We’ve been particularly concerned about the thousands of Massachusetts residents who purchased foreclosed properties which are now left with defective titles due to the various errors and missteps of foreclosing lenders and their foreclosure attorneys. In the 60 Minutes segment, the new head of the FDIC, Sheila Bair, proposes a federal “Superfund” to clean up this colossal mess. That’s certainly a good idea. Innocent home buyers shouldn’t have to bear the burden of all the mistakes and shortcuts made by a banking industry too eager to process foreclosures at any cost.

More Coverage:

U.S. Bank v. Ibanez case

Defective Foreclosure Titles In Massachusetts: What’s Next?

 

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What Baseball & The Red Sox Can Teach Us About Real Estate

by Rich Vetstein on March 31, 2011

in Realtors

April 1st marks the Boston Red Sox’s Opening Day. No more wait ’til next year. This is the year!

Come to think of it, there is a lot that Youk, Pedroia, Big Papi and the rest of the Red Sox can teach us about real estate. Here are a few tips–

Listen to your Manager and your General Manager. Your Manager is your real estate agent. Your General Manager is your real estate attorney. Tito and Theo (yeah!). Joe Girardi and Brian Cashman (boo!!!). This is the foundation of your team. Listen to them. Trust them. They will lead you to the World Series–your closing.

Spring training is more than just practice. In real estate, spring is the busiest time of year. So apply your eye black and get your game face on. Make your best offer. Swing for the fences. Everything counts in the spring in real estate.

When you get up to the plate, make sure you have your batting helmet and battling gloves on, and you’ve studied the pitcher. In real estate, this means that if you are buying, you need to be well prepared. Get pre-qualified or even better, pre-approved for a mortgage so your offer will be seriously considered by the seller. Studying the pitcher means do your homework. Have your real estate agents pull comparable sales and obtain market research before settling on a offer price. Same for sellers. It’s not what you need or want for a price, but what the market will bear. Reality check.

Baseball is a rewarding long-term investment. Watching a baseball game can be a long term investment. (Sometimes too long!). So is real estate. Think long-term. This is going to be your home for the next several years. Don’t lose sight of that.

Don’t get caught stealing. Sellers, be honest and upfront about your home and its problems. The home inspector will most likely find all the issues you’ve tried to hide, so disclose up front. Otherwise, you’ll lose all credibility, and the deal will be that much harder to close.

Expect an occasional curveball. With tight credit requirements and longer underwriting, closing in 30 days is very difficult. Delays are becoming more prevalent as well. So, hope for the best, but prepare for the worst.

Statistics & numbers are critical. ERA stands for Earned Run Average, not a well known local real estate office. CMA stands for Comparative Market Analysis. For real estate, you need to crunch a lot of different numbers: price per square foot, PITI, down payment, taxes, etc. You can’t properly analyze a baseball team or a real estate market without understanding the numbers. Sabermetrics for real estate anyone?

Waiting until next year is not always the best strategy. This is more true than ever. Most experts believe we have hit bottom in the Greater Boston area. Interest rates are still at historical lows. It’s time to pine tar the bat and get up to the plate. Get out of the on deck circle.

Spitting should never be permitted in a dugout or a living room. ‘Nuff said.

Play Ball and go Red Sox!!!

_______________________________________________

Richard “Lefty” Vetstein, Esq. is an experienced Massachusetts real estate attorney and life-long, diehard Red Sox fan. Rich was once a fire-balling southpaw pitcher in Little League, striking out 14 batters in one game. His baseball career is now relegated to second-guessing managerial decisions and throwing things at the TV.

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Truth In Lending Disclosure Statement: How About Confusion In Lending?

by Rich Vetstein on March 28, 2011

in Closings, Disclosures, HUD, Massachusetts Real Estate Law, Mortgages, Truth in Lending

Annual Percentage Rate (APR), Amount Financed, Finance Charge, and Total Payments…the Truth In Lending Disclosure Statement is one of the most challenging disclosure forms to explain to borrowers at a Massachusetts real estate closing. I like to call it the “Confusion In Lending” Statement because the form is what happens when the government attempts to recalculate your interest rate and closing costs in a way most human beings would not even consider.

To explain the Truth In Lending Disclosure, we’ll use a dummy form for a $500,000 purchase transaction with a $400,000 loan (20% down payment), a 30 year fixed rate loan at 5.00% at a cost of 1 point.

Annual Percentage Rate

The confusion begins. The Annual Percentage Rate, or APR, as you can see is not 5.00%, which is the contract interest rate for the loan. Why? Because the APR does not use the loan amount for its calculations but rather the “Amount Financed.”

Amount Financed

And the confusion continues. The Amount Financed is not the $400,000 loan amount, but is about $6,600 less than the loan amount. That is because the Amount Financed equals the loan amount ($400,000) less prepaid loan and closing fees and payments. Fees included in the amount financed are: points, lender fees such as underwriting, process, tax service, mortgage insurance, escrow company fees, prepaid interest to end of closing month, and Homeowners Association fees. All of these fees are added up and subtracted from the loan amount to reach the Amount Financed figure. Note that depending on when the loan closes in the month, and fees from third parties such as escrow companies the Amount Financed will vary and therefore so will APR.

How The APR Is Calculated

Now that we have the Amount Financed, we can calculate the APR. For a 30 year fixed loan such as this, the true loan amount is amortized for the loan period using the interest rate. In our example $400,000 amortized for 30 years at 5.00% has a payment of $2,147.29 per month paying principal and interest.

To calculate the APR, we use the same payment –$2147.29 every month for 30 years– to pay off an Amount Financed of $393,372.22 (loan amount less costs) to reach an APR of 5.141%. So the APR is higher than the interest rate because the Amount Financed is lower than the loan amount for the same monthly payment and term.

ARMs–Adjustable Rate Mortgages

If you are taking out an adjustable rate mortgage (ARM), you may as well just throw the Truth in Lending Disclosure out the window. The TIL is allowed to be based on the introductory interest rate through the entire life of the loan. Your adjustable rate mortgage, however, will reset its interest rate after 3, 5, 7, or 10 years depending on the type of product. There’s no way to predict where interest rates will be in the future, so the Truth in Lending Disclosure is inherently inaccurate for ARMs.

Explaining the Truth in Lending Disclosure is one of the many functions of a Massachusetts real estate closing attorney. In other states which aren’t required to use closing attorneys, they will not explain these complicated forms to you.

___________________________________

Richard D. Vetstein, Esq. is an experienced Massachusetts Real Estate Closing Attorney. For further information you can contact him at [email protected].

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Massachusetts Purchase & Sale Agreement Contingencies In A Changed Market

by Rich Vetstein on March 25, 2011

in Appraisals, Closings, Condominium Law, Fannie Mae, FHA, Massachusetts Real Estate Law, Mortgages, Purchase and Sale Agreements

The “Standard Form”

In Massachusetts, buyers and sellers typically use the standard form purchase and sale agreement created by the Greater Boston Board of Real Estate. This form has been around since the late 1970’s and last updated in 1999–which might as well be 100 years ago in real estate life. Along with the standard form, attorneys for sellers and buyers customarily add specialized Riders to the agreement which modify the standard form and add contingencies particular to the deal.

A Vastly Changed Landscape

The legal and mortgage financing landscape has changed so much in the last few years, with Fannie Mae and regulatory agencies issuing a new policy what seems like every other week, and short sale and REO transactions becoming much more prevalent. With the recovering market and new appraisal guidelines, some homes are not appraising out. Moreover, lenders have tightened underwriting requirements considerably. As a result, borrowers have more difficulty qualifying for mortgage loans, it takes longer to get a loan commitment, and there are often delays in getting the loan “cleared to close.” All these changes in the real estate landscape require re-thinking of the standard form purchase and sale agreement and the associated riders.

As experienced Massachusetts real estate attorneys, it shouldn’t come as a surprise to know that we are on top of the latest changes in the Massachusetts and national real estate landscape, and have adapted our legal forms accordingly. I’ll go through 3 recent changes that I’ve adopted in my practice.

Low Appraisal Contingency

These days, appraisals are administered is a completely different fashion. New rules – the Home Valuation Code of Conduct (HVCC) – hold appraisers to higher standards and sharply limit communication between appraisers and lenders. Mortgage professionals can no longer select their “hand-picked” appraiser now; there is basically a random lottery system to select the appraiser. The downside of this lottery is that the appraiser may not be very familiar with the town or neighborhood being appraised. So the appraisal may fall short of the agreed-upon selling price.

I always insist on this provision to protect a buyer against the risk of the property not appraising out.

Appraisal– The buyer’s obligations, hereunder, are contingent upon the BUYER’s lender obtaining an appraisal of the property in an amount at least equal to the purchase price of the premises.

What happens if the property doesn’t appraise for asking price? Sometimes you can ask for a second appraisal or bring different comparable sales to the appraiser’s attention and he can revise the appraisal. Sometimes, the parties must re-negotiate the purchase price. Talk to your lender and Realtor about the options. This provision, however, gives the buyer an “out” if a low appraisal cannot be overcome.

Condominium Fannie Mae Compliance

Tougher Fannie Mae and FHA condominium rules have made condo financing much more challenging. I add this clause to deal with this situation:

The Condominium, the Unit, and the Condominium Documents (including but not limited to the Master Deed and By-Laws/Trust) shall conform to the requirements of Federal National Mortgage Association (“FNMA” or “Freddie Mac”), Federal Housing Administration (“FHA”) or Federal Home Loan Mortgage Corporation (“FHLMC”) or other secondary mortgage market investor, and shall otherwise be acceptable to BUYER’s mortgage lender.

Rate Lock Expirations

Delays happen. There may be a title problem which the seller needs a few days or weeks to correct. But what if your rate lock will expire and you are facing a higher interest rate loan? This provision protects the buyer in this situation:

MODIFICATION TO PARAGRAPH 10: Notwithstanding anything to the contrary contained in this Agreement, if SELLER extends this Agreement to perfect title or make the Premises conform as provided in Paragraph 10, and if BUYER’S mortgage commitment or rate lock would expire prior to the expiration of said extension, then such extension shall continue, at BUYER’S option, only until the date of expiration of BUYER’S mortgage commitment or rate lock.

There are many other contingencies and new provisions that I use, but I cannot give them all away!

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Richard D. Vetstein, Esq. is an experienced Massachusetts Real Estate Attorney. For further information you can contact him at [email protected].

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Chatham Waterfront Owners Lack Standing To Challenge Special Permit Over Ocean View Obstruction

by Rich Vetstein on March 18, 2011

in Massachusetts Real Estate Law, Zoning

Ocean and waterfront views are some of the most valuable and fought-over property amenities in Massachusetts. The difference in price between a property with unobstructed ocean view versus one without — even on the same street–  can be significant. Massachusetts zoning law books are filled with petty and expensive fights about even the most minimal obstructions of ocean views.

Kenner v. Chatham Zoning Board of Appeals (click to download), recently decided by the Massachusetts Supreme Judicial Court, falls into that category, and provides current guidance on one of the most important aspects of zoning challenges, a legal requirement called “standing.”

Blocked Ocean Views

For anyone practicing in the zoning trenches, it comes as no surprise that Brian and Carol Kenner were none to pleased when the Chatham Zoning Board of Appeals issued a special permit to their neighbors Louis and Ellen Hieb to demolish their existing small cottage and rebuild their house on Chatharbor Lane–with an increase in height of 7 feet and corresponding obstruction of their Atlantic Ocean view. The Kenners, who live directly across the street, claimed that the Heib’s new home would block the light and ocean breezes to their deck and would lead to an increase in traffic in the neighborhood.

Minimal Impact

But after visiting the property, Land Court Judge Charles W. Trombly found that the Kenners failed to provide credible evidence that they would be harmed by the project. Their contention that the increased height would block light and ocean breezes or add to traffic were speculative or generalized opinions, the judge said.

The case went up to the Supreme Judicial Court where Justice Francis Spina ruled that unless a town’s zoning bylaw specifically provides that a zoning board should take into account the proposed structure’s visual impact on abutters, aesthetic view concerns “are not a basis for standing.” Chatham’s zoning bylaw indicates standing can be demonstrated if the plaintiff shows both “a particularized harm to the plaintiff’s own property and a detrimental impact on the visual character of the neighborhood as a whole,” Spina wrote, and the Kenners failed to satisfy this burden.

Harm, Not Just Impact, Required For Standing

My fellow counselor and friend, Daniel Dain, Esq. who represented the Town of Chatham, commented to Massachusetts Lawyers Weekly that the SJC clarified for the first time the specific distinction between harm and impact in standing cases, where views, noise and traffic are central. “It has to be harm, not just impact. All impact is not harm,” Dan said.

Dan’s synopsis of the decision is spot on. Standing is always a threshold battle in zoning appeals. Abutters who challenge permits need to gather real, hard evidence — from traffic engineers and other experts — to prove the project will have a real and substantial impact on their protected property rights. Here, a minimal 7 foot increase in view obstruction just wasn’t good enough to prevent a neighbor from rebuilding his oceanview home.

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Richard D. Vetstein, Esq. is an experienced Massachusetts Zoning and Special Permit Attorney. For further information you can contact him at [email protected].

 

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New Fannie Mae Condo Rules Over Pending Litigation Make Condos Harder To Sell

by Rich Vetstein on March 18, 2011

in Condominium Law, Fannie Mae, Massachusetts Real Estate Law, Purchase and Sale Agreements

Litigation Over Condominium Construction Can Derail Financing

It’s always humbling to be quoted in a major real estate publication such as Inman News. Last summer, I wrote about the nasty effect of the newer pending litigation Fannie Mae condo rules. Steve Bergsman, from Inman, was gracious enough to retell a story about how these rules left my client with a denial of his financing just days before his condo closing, leaving him living in a motel for weeks. (Another attorney represented him in the transaction, who I believe bordered on committing malpractice by not following my guidelines, below).

My legal advice for Realtors and condo buyers is to:

  1. Have the condominium association disclose whether it is involved in any type of pending litigation which could trigger the Fannie Mae guidelines.
  2. Get this information as early as possible, because it’s a deal killer.
  3. I always put a provision in my purchase and sale agreement rider in which the seller represents there is no pending litigation involving the condo.

Here is the Inman story, entitled New Rules Make Condos Harder To Sell (March 18, 2011):

Attorney Richard Vetstein told me this story: A client was going to buy a unit in a condominium development and thought he had it all wrapped up; he had an agreement in hand, deposit down and was two days away from closing.

Then he got a call from his lender, who said there were issues. “Issues?” the client asked. Essentially, his lender said there was active litigation involving the condominium building, and the loan would not be approved by underwriters.

Vetstein, of the eponymous Vetstein Law Group in Framingham, Mass., has done a considerable amount of legal work in the always colorful condominium world. Of the client in the story, he said, “Luckily, I was able to negotiate his deposit back, but he lost the deal, and since he had sold his prior residence, for awhile he was living in a motel. It just ruined his life for a couple of months.”

The episode didn’t make the seller of the condo unit any happier, either. Buyers these days are extremely hard to come by.

So what happened?

Recent changes to the Fannie Mae Selling Guide, including some alterations that went into effect March 1, make that afternoon leisure time on your personal veranda with the ice tea in your tumbler and a Robert Patterson paperback in your hand more chilling than comforting.

Condo watchdogs generally are focusing on two changes that could affect your pocketbook, either as a homeowner or home seller. The first has to do with newly converted, non-gut rehabilitation condo projects, while the second, which affected Vetstein’s client, has to do with the collateral damage of an ongoing litigation.

Fannie Mae now declares mortgage loans in progress on a condo involved in any type of litigation, other than minor litigation (i.e., disputes over rights of quiet enjoyment), ineligible for delivery, said Orest Tomaselli, CEO of White Plains, N.Y.-based National Condo Advisors LLC.

“There are different types of litigation, from slip-and-fall cases to structural issues, so Fannie split it all up and any project where the HOA is named as a party defending litigation that relates to safety, structure (or) soundness of functional use (is) ineligible,” Tomaselli said. “These projects will not be able to enjoy Fannie Mae project approval nor the financing that results from it.”

The Fannie Mae guidelines read: “Any project (condo, co-op, or planned unit development) for which the homeowners association or co-op corporation is named as a party to pending litigation, or for which the project sponsor or developer is named as a party to pending litigation that relates to safety, structural soundness, habitability or functional use of the project, remains ineligible.”

What this means is, if your neighbor has some personal beef with the homeowners association or developer because his plumbing doesn’t work or the front door of the building has a bad lock and sues, well, that can affect you because a potential buyer can not get a Fannie Mae loan. Sure, the buyer can go to a bank and get a different loan, but that would just be more expensive.

What happened with Vetstein’s client was that a crazy, litigious unit owner was suing the condo association and prior builder for minor leaks.

“It was something that really should have been resolved by the trustees, builder or even insurer,” Vetstein explained. “It didn’t involve a lot of money, but the lawsuit was out there, pending and not resolved. There was no waiver because the litigation fell within these parameters of structural soundness and safety. Fannie Mae said, ‘Sorry, there’s no gray area here.’ ”

The changes present a conundrum for HOAs. It’s not uncommon in cold-weather states to experience poorly worked roofs resulting in water penetration of condominium units. Condo owners get upset, the HOA gets upset, and everyone wants to sue the builder or roofer. Unfortunately, this triggers a Fannie Mae issue.

“There is nothing the condo association can do about someone suing over defective conditions, but it certainly does have control over who they sue,” Vetstein said. “The HOA needs to know a lawsuit will have a ripple effect.”

The other problem for condo owners is specifically for those who live in developments that essentially have been converted from rentals into ownership units, or as Fannie Mae officially labels them, newly converted, non-gut-rehabilitation condo projects.

Those developments have to go through a Project Eligibility Review Service, or PERS.

The Fannie Mae Selling Guide updates read: “Many buildings are converted to condominiums without the replacement of major components resulting in eventual increased costs to unit owners for maintenance and major repairs. In order to mitigate the additional risk that newly converted, non-gut-rehabilitation projects pose, all newly converted, non-gut-rehabilitation condo projects must be submitted to PERS for review and approval.”

The problem is the cost to the HOA. Fannie Mae charges $1,200 for the review, plus $30 for every unit in the buildings, said Tomaselli. So, if you’re looking at 200-unit building, that’s $7,200 that has to paid out.

In addition, the newly converted non-guts have to undergo a reserve study to determine over a 30-year period of time what the repair costs are going to be in regard to such items as elevators, roofs, mechanical and structural systems, and the exterior.

“The current guidelines require that only 10 percent of the budget be set aside for reserve. Once the reserve study is done, an accurate number is given on what the reserve should be — and those numbers can be tremendous,” Tomaselli said.

The main goal of a reserve study is accuracy. “This guideline requiring reserve studies for new non-gut-rehab condominiums will ensure accurate reserve funding enforcement that will eliminate special assessments in most cases,” said Tomaselli.

It’s not a bad thing for Fannie Mae because it is making sure homeowners are protected — but for developments, increased maintenance can loom large.

Steve Bergsman is a freelance writer in Arizona and author of several books. His latest book, “After the Fall: Opportunities and Strategies for Real Estate Investing in the Coming Decade,” has been ranked as a top-selling real estate investment book for the Amazon Kindle e-reader.

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Buy/Sell “Piggyback” Transactions In A Changed Market

by Rich Vetstein on March 15, 2011

in Closings, Massachusetts Real Estate Law, Purchase and Sale Agreements, Real Estate Marketing, Realtors

This is a summary of a recent presentation given by Jon Ufland and Chuck Silverston of Prudential Unlimited Realty, Attorneys Richard Vetstein & Marc Canner of TitleHub Closing Services, and Mark Maiocca of Mortgage Network.

Selling & Buying Simultaneously

Many home buyers today still need to sell their current homes and use the sale proceeds for their next purchase. Often, there is a closing in the morning on the “sell,” and a closing in the afternoon on the “buy.” This is called a “piggyback” or “back to back” sale.

Back in the boom days, we were doing piggyback transactions all the time, and lenders were able to offer special programs, like bridge loans, to facilitate these back to back transactions. The days of bridge loans, no-docs, and 100% financing may be over, according to Mortgage Network’s Mark Maoicca, but piggyback transactions are still going on, but in a changed market.

There are numerous factors and variables to consider when doing a piggyback transaction, from a legal, financial/lending and marketing perspective.  There can be at least 11 different people involved – buyer, seller, 2 agents, up to 3 attorneys, loan officer, appraiser, home inspector and contractor.

Sales/Marketing

There are a number of considerations on the sale/marketing side according to Jon Ufland and Chuck Silverton of Prudential Unlimited Realty. When to put your home on the market so as to ensure a quick sale? Statistics show that the most sales activity in the Greater Boston area occurs in March, April and May, with families trying to get settled before the summer and back to school season ends. December through February is the dead zone. Getting a pre-sale home inspection and comparable market analysis before putting your home on the market are two good tips suggested by Jon and Chuck.

Lending

According to Mark, lenders are no longer offering bridge loans or 100% financing, which helped cash strapped sellers to close on their new purchases. Also, home equity lines are tougher to qualify for. No income verification and stated income loans are just about long gone for the recently self-employed. Mark also says that the days of “washing the rent” on income properties is over. You need a 2 year history of rental income for qualification purposes. You also need to factor in the required real estate tax and insurance escrow reserve in your mortgage payment affordability analysis.

Bottom line, confer with your loan officer and financial planner as early as possible in the process before putting your house on the market! Get those financial ducks lined up before….

Coordination & Control

The piggyback transaction works best when one person takes on the role of “project manager.” It’s usually your real estate agent or attorney. Communication and coordination is the recipe for a successful piggyback transaction.

On the legal side, the overriding goal is to keep your buyer’s feet to the proverbial coals on the sale while protecting your deposit on the buy. It may seem like common sense, but it’s best to hire the same attorney to handle both transactions. An experienced attorney will line up the two mortgage contingency deadlines so that your buyer will obtain a firm loan commitment as soon as possible (with no contingencies, especially the sale of other property), and you have sufficient time on your purchase to get your own firm commitment while protecting yourself from any worst case scenarios like job loss, defective title, etc. The attorney should always be on top of these important deadlines so he or she can ask for extensions and otherwise exercise any opt out rights. Failure to do that can result in the loss of your deposit. Delays are common today in the tighter lending environment.

The Big Day

As the closing day approaches, everyone gets into high gear, with the agents coordinating smoke certs and pre-closing walk-throughs, the attorneys drafting preliminary HUDs, deeds, and coordinating wires, and loan officers sending closing packages. Speaking of wires, your attorney should be able to coordinate a wire of your sale proceeds into the IOLTA account of the purchase closing attorney, so you have good funds to close.

The closing day is about as hectic as you can get. I suggesting giving your attorney a power of attorney so he or an associate can attend the closing on the sale, get on record, coordinate the funds, and you can deal with moving and attending the purchase closing in the afternoon.

______________________________________________________

Jon, Chuck, Marc, Rich and Mark have all worked together as a team on piggyback transactions. Don’t hesitate to contact us if you need expert assistance.

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Spring Forward, Change Your Smoke/CO2 Detector Batteries & Upgrade To Photoelectric Technology

by Rich Vetstein on March 13, 2011

in Safety

Daylight Savings Time has started which is always a great reminder to change the batteries on your smoke and carbon monoxide detectors.

You should also consider replacing old detectors with the new photoelectric smoke detectors for the kitchen and bathroom areas which are now required by law in new homes under the Massachusetts smoke detector regulations which went into effect last year. Photoelectric smoke detectors are not as prone to false alarms as older ionization based detectors especially in steam filled areas like kitchens and bathrooms.

The new smoke detector law specifically requires photoelectric detectors covering the area within 20 feet of a kitchen or bathroom containing a bathtub or shower. The older ionization detectors are prohibited in these places due to their tendency to be set off by steam.

Home Depot sells a Kidde brand combination photoelectric/ionization smoke detector for $22.97.

Here’s a great Guide to the smoke detector law put out by the Department of Fire Services. Click here for my prior post about these changes.

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A Comprehensive Guide To The New Massachusetts Homestead Act

by Rich Vetstein on March 5, 2011

in Homestead, Massachusetts Real Estate Law

A Guest Post by Harold Clarke, Esq., New England Regional Counsel, Westcor Land Title Insurance Company.

On December 16, 2010, Governor Patrick signed into law a greatly expanded and revised Massachusetts Homestead Act which will take effect on March 16, 2011.

Changing Definition of a “Family”

Since its inception in the 1850’s, the homestead statute, now MGL c. 188, was designed to protect a person’s home from the claims of the homesteader’s creditors. This protection extended not only to the homesteader but to his/her family as well. The legislature realized that the very concept of a “family” has changed over the years and that conflicting court decisions have created confusion regarding certain provisions of the existing homestead law. As a result, this year the legislature repealed the existing statute and replaced it with a new c. 188.

At the outset, the statute defines a family as (1) married individuals, both of whom own a home, and any minor child; (2) a married individual who owns a home, a non-titled spouse of the married individual and any minor child; or (3) an unmarried individual who owns a home and any minor child. For the purpose of the statute, a minor child is a person aged 21 and under.

The statute defines a home as the aggregate of any of the following:  a single family dwelling including accessory structures and the land on which it is located, a 2-4-family dwelling including accessory structures and the land, a manufactured home and for the first time units in a residential condominium or in a cooperative are specifically mentioned.

Automatic Protection for $125,000

The new law provides for an automatic homestead exemption (Section 1C) in the amount of $125,000.00. It’s automatic in that it does not require recording anything in order to obtain its protection. As with the old statute, a homestead only applies to a person’s principal residence. Now, by definition, a person may have only 1 principal residence. In addition, in all mortgage transactions, the closing attorney must provide the borrower with a notice of the right to declare a homestead. The borrower must acknowledge receipt of this notice in writing. The notice must include a summary of the differences between the automatic homestead protection and the enhanced benefits acquired by making and recording a declaration of homestead.

Elective Protection For $500,000

The statute (Section 2) provides the procedure for declaring a homestead. This homestead, referred to as a Section 1B homestead, must be in writing and signed and acknowledged under the penalty of perjury by each owner and then recorded/filed at the appropriate Registry of Deeds. If the owner has a non-titled spouse, he/she must be identified. The declaration must state that each person named intends to or occupies the home as their principal residence. It is to be signed by both spouses if they are the co-owners and the home is or will be each ones principal residence. The homestead must be created by a separate instrument; it can not be incorporated in the deed of the home. The Section 1B exemption remains at $500,000.00.

The statute recognizes two new classes of owners- holders of a life estate and holders of a beneficial interest in a trust. If the home is owned in a trust, only the trustee need execute the homestead.

Elderly Homestead

The statute continues to provide for homesteads for the elderly (age 62 or older) and for disabled persons. There are specific recording requirements for each type of these Section 1A homesteads. The Section 1A exemption also remains at $500,000.00.

For the first time, the statute provides for stacking Section 1B and 1A homesteads on the same home. The statute contains mathematical formulas to calculate the available exemption depending on the way that the title is held between the owners. The statute makes it clear however that no person may concurrently hold rights under a Section 1A and Section1B homestead.

Termination of Homestead

Frequently for real estate attorneys, it is also important to know how to terminate an existing homestead.

A Section 1A homestead is terminated upon: (1) sale or transfer of the homesteader’s interest in the home, except where the elderly or disabled person is also the transferee; (2) a recorded release of the person’s homestead; (3) a subsequent declaration of homestead on another property; (4) the abandonment of the home as the principal residence by the homesteader; (4) upon the death of the homesteader; (5) as to a home owned in a trust, the execution of a deed or recorded release by the trustee.

A Section 1B (and the automatic Section 1C homestead) may be terminated by (1) a deed to a non-family member conveying the home, signed by the owner and a non-owner spouse or former spouse residing in the home as a principal residence as of the date of the deed; (2) a recorded release of the homestead, duly signed and acknowledged by the owner and a non-owner spouse or former spouse residing in the home as a principal residence as of the date of the release; (3) the abandonment of the home as the principal residence by the owner, the owner’s spouse, former spouse or minor children . Note that no person in the military service shall be deemed to have abandoned the home due to such service; (4) if the title is in a trust, by either (a) the execution of a deed or a release of homestead by the trustee or (b) action of a beneficial owner identified in the declaration, who is not a minor child, taken in the same manner as provided in clauses (2) and (3) above; or, (5) a subsequent recorded homestead under Section 1B on another property, except that the declaration shall terminate only the rights of the owner making the subsequent recorded homestead and the rights of that owner’s spouse and minor children who reside or intend to reside in the other property as their principal residence.

Effect of Mortgage Refinancing

Section 6 is of particular interest to real estate attorneys. It provides that an estate of homestead shall be subordinate to a mortgage encumbering the home executed by all the owners of the home. A non-titled spouse does not have to sign the mortgage. A mortgage lender shall not require a release of an existing homestead in a refinance. The statute controls and the mortgage does not have to state that a recorded homestead is subordinate to it.

Other Matters

The statute eliminates the problem of the so-called “silent termination” involving deeds between spouses, former spouses and other co-owners who individually or jointly hold a Section 1B or Section 1C homestead estate, deeds between trustees and trust beneficiaries and life tenants and remaindermen. In these situations, the homestead is not terminated unless it is expressly released, pursuant to the statute, by parties entitled to protection under the act.

The statute also provides that recording a second declaration of homestead on the same property relates back to the initial declaration. Under the old statute, the newer homestead would terminate the earlier one thus exposing the homesteader to the claims of intervening creditors.

As to existing homesteads, they are still valid despite the fact that the act under which they were created has been repealed or that their execution would be invalid under the new statute.

If you would like to discuss this or any other issue, please contact me directly at (617) 823-2719.

Harold Clarke

New England Regional Counsel

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Rich’s Note: Thank you Harold for the informative post!

Two important take-aways: (1) If you don’t have a homestead declaration filed, get it filed. Contact our office and we can do it for you for less than $100; (2) if you already have a declaration of homestead recorded, you automatically get the protection of the new law, so you don’t have to do anything.

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What’s That Smell? From Cesspools to Septic Systems: An Overview of Massachusetts Title 5 (V) Rules

by Rich Vetstein on March 4, 2011

in Massachusetts Real Estate Law, Safety, Septic/Title V

Nearly 30% of homes in Massachusetts are dependent upon Septic Systems, rather than municipal sewer systems. Sudbury, Wayland, Dover, Hopkinton, and many towns down the Cape are serviced by private septic systems.

Septic systems are governed by what’s commonly known as “Title V” or “Title 5” which is Title V of the state Environmental Code administered by the Massachusetts Department of Environmental Protection (DEP). These complex regulations administer the design, construction and operation of septic systems, and are of great importance to homeowners, real estate developers, lenders, Realtors, and attorneys. The rules affect as many as 650,000 Massachusetts homeowners with on-site subsurface sewage disposal systems.

Frequently Asked Questions About Title V

I am selling my home. What is the first thing I must do with my septic system?

The first thing that must be done is to have a Title V inspection, completed by an inspector who is licensed by the state and your town. A list of licensed inspectors is available at your local Board of Health office. Here is a Board of Health roster for Massachusetts. The BOH must be notified 24 hours in advance to any inspection, so that the Health Agent may attend the inspection, if his schedule allows. Any inspection completed without prior notification is not accepted and considered invalid.

According to Sudbury, Mass. Realtor Gabrielle Daniels Brennan, unless you have a very recently installed system, do not hire a company who also repairs and replaces the systems to conduct your Title V inspection. They only pump systems and inspect, and have no interest in anything else.

The inspector will determine whether your system “passes,” “fails” or “conditionally passes” (i.e., requires repairs).

How long is the Title V inspection valid?

A Title V inspection is considered valid for 2 years. However, if the homeowner has his septic system pumped every year, it is valid for 3 years.

My septic system Title V failed. What do I do now!?

If the inspection fails, your septic system must be repaired or replaced. If ownership of the house is not being changed, the homeowner may have up to two years to complete the repair. However, if the Health Agent deems the failure to be a health hazard, the homeowner can be required to begin the process of repairing it immediately.

Failed septic systems can be handled in a real estate sales transaction in two ways. First, the seller can undertake the work and complete it prior to closing, with a full sign off from the Board of Health. This is often the preferable course for all parties and the lender. Alternatively, the parties can agree to an escrow holdback to cover the cost of the septic repair plus a contingency reserve, and the work is undertaken after the closing. Some lenders don’t allow septic holdbacks, however.

What are the steps and permitting fees to install a new septic system?

The first step in beginning a septic repair is to hire an engineer to evaluate your land and to design a system that would be appropriate for your property. Once the engineer is hired, a percolation or “perc” test is scheduled. The perc test measures the rate at which water is absorbed into the ground and determines whether the soil is suitable for a septic system. Based on the results of the perc test, the size of your lot, and the number of bedrooms in your home, the engineer designs a septic system to serve the property. Once the plans have been drawn, four copies of the plans, two copies of the soil analysis, and a check for $175.00 must be submitted to the Board of Health office. The BOH has 45 days to review the plans and to either approve or reject them. If the plans are approved, the plans can be picked up and the installation of the system can begin. If the plans are rejected, the plans must be revised and an additional fee of $75.00 is charged to have them reviewed again. If the designed system requires state variances (done by the Department of Environmental Protection), an additional 90 days must be allotted for the review process.

When the job is completed is there any form of certification that it has been done and that it meets Title V standards?

At the completion of the job, (that is, when all work has been done according to the plans; when the engineer has submitted an “as-built” plan as to where the system was installed; and when the installer has submitted a certification statement), the Health Agent signs a Certificate of Compliance, (COC), which is issued to the installer. Upon payment for the work, the installer gives the COC to the homeowner.

How long does the process for repairing a septic system take, from beginning to end?

A homeowner should allow approximately 3 to 4 months for the installation of a septic system. The length of time can vary from system to system. There are a number of variables involved. The availability of the Health Agent to witness a “perc “ test is one. Because of the amount of work that has to be completed, engineers and installers are often busy for months in advance. In addition, if the designed system requires either local or state variances, time must be allotted for public / variance hearings. A system that is installed in less than 2 months (from start to finish) is the exception to the rule.

What is an average cost for the system?

New septic systems can range from $25,000 to $40,000. The type of system designed, the size of the lot, the number of bedrooms, the engineering fees, the requested variances, the type of soil, and the proximity of the system to water, all contribute to the cost of the system.

If I am required to replace my failed system and I do not have the money, what do I do?

Homeowners who cannot afford to repair their failed septic systems made apply for financial aid with the Massachusetts Home Septic Loan Program. Here is the MassHousing Web site. Here is the PDF for the Homeowner Septic Loan Repair program. Applications for this program are available at most local banking institutions. The loans are low interest and repayable over an extended period of time.

The state also provides a tax credit of up to $6,000 over 4 years to defray the cost of septic repairs to a primary residence. Forms are available from the Department of Revenue (DOR) to allow homeowners to claim up to $6,000 in tax credits for septic upgrades. The credit cannot exceed $1,500 in any year and may be spread out over 4 years. The tax credit is limited to work done on a primary residence only. Tax Form Schedule SC is the correct form for the tax credits. MassDOR Web site

I have a cesspool. Will that pass Title V?

You may be wondering how this all applies to cesspools. Cesspools are much harder to pass in Massachusetts. Does every single one automatically fail? No.

Only those cesspools that exhibit signs of hydraulic failure, are located very close to private or public water supplies, or otherwise do not protect or pose a threat to the public health, safety or the environment will need to be upgraded. Also, cesspools must be upgraded prior to an increase in design flow (e.g., the addition of a bedroom to a home.

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For any questions concerning Title V and the  septic rules and regulations, please contact me at [email protected].

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MCLE Real Estate Law Annual Conference On April 7th–Richard Vetstein To Speak About Real Estate Tech

by Rich Vetstein on March 3, 2011

in Massachusetts Real Estate Law

MCLE (Massachusetts Continuing Legal Education) is holding their popular Real Estate Law Annual Conference on April 7, 2011, at 9:00AM at their offices located at 10 Winter Place, Boston, MA. You can also attend the conference virtually through their webcast on www.mcle.org.

I’m honored to be presenting at the conference on what else but — “Technology Update: Learn How To Leverage Cutting-Edge Technology To Streamline Your Practice.” Real estate tech experts, Jim Sifflard from First American Title, and George Warshaw, Esq. are presenting with me. There are also great sessions on Title Claims, Condominium Law, Ethical Issues and Environmental Concerns.

Hope to see you there!

For the conference brochure click here.

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How Will Real Estate Closings Look In 2021?

by Rich Vetstein on March 2, 2011

in Closings, Electronic Closings, Offer To Purchase, Purchase and Sale Agreements, Technology

Are Electronic Contracts And E-Signatures On The Way?

Catching my eye this week was a recent New York Times article discussing a New York state court opinion regarding the legal effect of e-mail in real estate contracts.  The ruling reaffirmed that e-mail may carry the same weight as traditional ink on paper contracts.

It made me think about the future of real estate contracts and how they will look. Will the common practice of executing four original purchase and sale agreements be replaced by some type of electronic PDF document with electronic signatures? (I hope so. They are in the West Coast now). Same for the standard Offer to Purchase? What about the stack of disclosures and loan documents signed at closings? (There must be a better way). And mortgages are already being electronically recorded in several Massachusetts counties.

I wonder how closings will be conducted in 2021?

Congress and state legislatures have already laid the groundwork for electronic real estate contracts and e-signatures. In 2000, Congress enacted the E-SIGN law which validated certain contracts in electronic form and electronic signatures. In 2004, Massachusetts adopted the Uniform Electronic Transactions Act (UETA), which is essentially updates the E-SIGN law. Lawmakers designed UETA and E-Sign to recognize that “a signature, contract, or other record relating to a transaction may not be denied legal effect, validity, or enforceability solely because it is in electronic form.” The Massachusetts UETA exempts several types of contracts and disclosures (e.g., wills), but not real estate contracts.

Old Traditions & The Statute of Frauds

But old traditions are hard to change, especially when it involves real estate.  As every first year law student learns, Massachusetts real estate contracts are governed by the Statute of Frauds.  This doctrine, originated in old English common law, says that any contract for the sale of real estate must be in writing and “signed by the party to be charged therewith.”  One can make a compelling argument that secured electronic contracts and signatures serve the purpose of the Statute of Frauds by providing some objective evidence, other than word of mouth, that there really has been a binding deal.

I haven’t found any cases dealing with the interplay between the UETA and the Statute of Frauds.  And there’s something about that “wet” ink signature on real paper that gives people security and comfort.  The same is true for our beloved Greater Boston Real Estate Board standard form Offer and P&S.  We’ll have to see how the issue plays out in the courts.

But if you can purchase a Ferrari online through E-Bay, why can’t you buy a home using a secure electronic contract?  How do you think technology will affect real estate in the future? What would you like to see change in the industry?

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An Unlevel Playing Field: T-Mobile Wins Yet Another Massachusetts Cellular/Wireless Zoning Appeal

by Rich Vetstein on February 23, 2011

in Massachusetts Real Estate Law, Zoning

With the proliferation of cellular/wireless service and coverage, Massachusetts town and cities have been bombarded in the last 10 years with applications for zoning relief for new cell towers and related equipment. These applications – especially in residential neighborhoods – raise the ire of local residents who don’t want cell towers in their backyards. Homeowners worry about the effect of electromagnetic frequencies on their children, aesthetics, and the impact to their property values.

Telecommunications Act of 1996

Local zoning boards’ ability to regulate cellular/wireless facilities, however, is significantly limited by the federal Telecommunications Act of 1996 (TCA) which provides that local zoning decisions cannot unreasonably discriminate among providers, have the effect of prohibiting service, or regulate on the basis of the effects of radio frequency emissions. The Telecommunications Act has spawned a decade’s worth of litigation in Massachusetts, with wireless servicers’ slugging percentage in the David Ortiz range.

T-Mobile Seeks To Bridge Coverage Gap

The most recent victory by the wireless industry is T-Mobile Northeast LLC v. City of Lawrence. T-Mobile sought to fill a coverage gap beset by those dreaded dropped calls in Lawrence’s Prospect Hill neighborhood by building a six foot high antennae hidden in a “stealth chimney” on top of a condominium building in a residential zone. Lawrence’s zoning ordinance bars wireless equipment in residential zones except on city-owned land, and requires a 1,000-foot setback from any residential lot. T-Mobile had previously asked the city to make municipal land available for its facility, but got no response. Having no other option, T-Mobile applied for the necessary zoning approvals and variances from the ownership and setback requirements.

Lawrence’s zoning board of appeals (ZBA) denied T-Mobile’s application, stating that it could not find sufficient facts to approve. (In other words, the majority of the board didn’t want the cell antennae at that location). At the hearing, some members of the ZBA expressed their views that the coverage gap was not real, ignoring T-Mobile’s expert, and that the antenna should go on municipal land so that the city could benefit financially. T-Mobile appealed the denial.

Federal Judge Lays The Smack-Down

The TCA provides for expedited review in federal court, another major advantage for wireless servicers which can by-pass often lengthy state superior and land court appeals. In federal court Judge Gorton pretty much eviscerated the board’s decision, as “rote” and merely parroting the relevant factors. The judge also characterized as “too little, too late” Lawrence Mayor William Lantigua’s plan to open up alternative municipally-owned sites for public bidding. The judge ordered that the permits be granted.

Lessons To Be Learned

The lesson in this case for town zoning boards is pretty simple. If you are going to deny a cell tower permit application, think twice and very hard at that. Perhaps consult town counsel before issuing a final decision, before causing your town to spend thousands on taxpayer funded legal fees with no reasonable chance of success.

Residents faced with cell towers and antennae in their neighborhoods need the assistance of an experienced Massachusetts zoning attorney who can navigate the complex TCA regulatory maze and utilize competing wireless coverage expert testimony. Upholding a denial of a cell tower appeal is very complex and challenging, but some neighborhood groups have been successful, despite the unlevel playing field of the Telecommunications Act. Check out Plymouth’s StopCenterHillTower.org for a recent example.

When I sat on the Sudbury Zoning Board of Appeals I presided over several cell tower permit applications, so I know both sides of the coin. It’s difficult, but not impossible to stop a cell tower from invading your neighborhood.

If you have any questions about Massachusetts cell tower zoning appeals, contact me, Richard D. Vetstein, Esq. via email by clicking here.

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From Escrows To Title Insurance: Making Sense Of Massachusetts Real Estate Closing Costs

by Rich Vetstein on February 16, 2011

in Closings, Massachusetts Real Estate Law, Refinances, Title Insurance

One of the most important jobs of the closing attorney during a Massachusetts refinance or purchase transaction is to fully explain the numerous closing costs that a borrower (and seller) must pay at closing. The best way to explain Massachusetts real estate closing costs in a blog post is the same way we would explain it at the closing–by reviewing the HUD-1 Settlement Statement line by line.

Prior to the closing, you should have received a Good Faith Estimate of closing costs from your lender. A good mortgage professional will always explain closing costs before you arrive at the closing table. The Good Faith Estimate or GFE will be a precursor of what you’ll be charged at closing, and certain closing costs cannot vary by more than 10% from the GFE. Bring your GFE to the closing to compare it with the HUD Settlement Statement.

HUD First Page, Borrower’s Column

We’ll use an actual HUD from a recent transaction, deleting the parties and property of course. This is a purchase for $250,000, reflected in line 101. The buyer is taking out a loan of $243,662.00 (line 202) to finance the sale. This is a FHA low down payment loan where the borrower must pay FHA mortgage insurance.

The total settlement charges, which are fully broken down on page 2 of the HUD (get to that down below), paid for by the borrower are $7,758.09, line 103. Because the closing took place on Jan. 31, in the middle of the tax fiscal quarter, real estate taxes on line 106 must be adjusted and paid for by the borrower through the end of the quarter, 3/31. As is customary in Mass., the borrower is also paying for home heating oil paid for by the seller and left in the tank (line 109–$241.20).

Line 120 tallies up the total amount due from the borrower at closing. Deducted from that number is the buyer’s deposit of $2,500 (line 201), and the buyer’s new loan of $243,662.00 (line 202). This borrower also fortunately received a seller closing cost credit of $5,708.93 (line 204) and a lender closing cost credit of $609.16 (line 205). Those credits really helped this borrower defray the closing costs.

In this transaction, there is a difference of $6,250.00 between the gross amount due from the borrower less the amounts paid by or for the borrower, which must be paid at at the closing (line 303). The borrower must bring a certified or bank check payable to himself (for fraud protection) for that amount to the closing.

Page 2 of the HUD

Page 2 of the HUD Settlement Statement itemizes all of the various closing costs, both from the borrower’s and seller sides.

Line 700 Series–Broker Commissions

In Massachusetts, the seller pays the real estate broker commission. Here, the seller is paying a total of 5% of the purchase price, or $12,500.

Line 800 Series–Lender Closing Costs

In this transaction, the lender is charging an “origination fee” of $1,735.00. This is the fee for procuring the loan. The lender has also charged the borrower for an appraisal for $425.00 but the initials “POCB” means it was paid for outside closing by the borrower. There are also small charges for a credit report and flood certification.

Line 900–Daily Interest and Mortgage insurance

The borrower is responsible for paying interest on the new mortgage loan from the closing date to the first day of the following month. That’s why most closings take place at the end of the month. The borrower is charged one day of interest of $32.54 (line 901). As this borrower is not putting 20% down, this particular loan requires mortgage insurance of $2,412.50 paid at closing by the borrower (line 902).

Line 1000–Escrow Reserves

The vast majority of mortgage lenders require borrowers to fund a real estate tax and homeowner’s insurance escrow account. Occasionally, a lender will waive the escrow for a fee or small interest rate increase. This is an aspect of closing costs that many borrowers have difficulty understanding.

The escrow account helps you and the lender anticipate and manage payment of property expenses by including these expenses as a portion of your monthly mortgage payment. Think of the escrow account as a small savings account for these expenses. An incremental amount of these expenses is added to your monthly mortgage payment, in order to cover these expenses when they are due. The lender will pay, on your behalf, the real estate taxes due on a quarterly basis, as well as the homeowner’s insurance for the following year.

Each year, your escrow account is reviewed to determine if the amount being escrowed each month is sufficient to pay for any change in your real estate taxes or homeowner’s insurance premiums. At closing, the closing attorney will collect sufficient funds to start your escrow account, typically 2-3 months worth of real estate taxes and up to a 12 months of homeowner’s insurance. In this case, the borrower must fund the escrow account with $817.12 (line 1001), which consists of 3 months of homeowner’s insurance and 2 months of real estate taxes. Remember, when you sell your home (or refinance) you will recoup your escrow account monies.

Line 1100–Title Charges

The line 1100 series shows the fees associated with the title examination, closing attorney fees and title insurance. In all transactions the lender requires the borrower to pay for lender’s title insurance and the settlement or closing fee to the closing attorney. In this transaction, the borrower has opted to purchase his own owner’s title insurance policy which protects the owner’s property and is highly recommended for many reasons. Read our post on title insurance here. So the borrower is charged $1,799.00 plus $477.50 for all the title work, closing attorney and both lender’s and owner’s title insurance premiums. The fee for reviewing and drafting the purchase and sale agreement is also included in the settlement fee on line 1102.

Line 1200–Gov’t Fees

The county registry of deeds imposes fees for the recording of the deed ($125) and mortgage ($175) which the borrower pays. The borrower also paid recording fees for an “MLC” which is a municipal lien certificate and a declaration of homestead. The seller pays the fee for the release ($75). The seller also pays a state transfer tax of $2.28 per $500.00 of value.

In Closing…

That’s basically it. Remember that closing costs differ widely between lenders, loan products, loan amounts, and closing attorneys. Make sure you ask to review the HUD Settlement Statement prior to the closing. It should be ready the day before or that day. Again, you should always speak to your mortgage professional about closing costs before you arrive at the closing table.

If you would like to speak with our office about handling your purchase or refinance transaction, please contact us at [email protected] and check out our website at www.titlehub.com. Thanks!

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